Renting out part of your home on a regular basis
When working out what expenses you can claim when you rent out a room in your home, you need to consider the following questions:
- How big is the property?
- How big is the rented room?
- How big are the common areas?
- How many days was the room rented out?
Common areas are parts of your home that you share with your tenant, for example kitchens and living areas. Common areas can also include outdoor spaces, for example gardens and balconies that are shared with a tenant.
You must apportion your expenses on a fair and reasonable basis. What is considered fair and reasonable depends on the:
- area of the property rented (area-based method)
- period of time the property was rented (time-based method).
You'll need to use both methods if you rent out a room in your home on a regular basis.
Area-based method
You need to work out the portion of your expenses that relate to the floor-area being used solely by the renter (user) and a reasonable floor-area of the common areas used.
The formula for apportioning expenses using the area-based method is:
[(A + (B ÷ 2)) ÷ C] × expenses incurred
Where:
- A is the floor area of the property solely occupied by the tenant
- B is the floor area of the common areas
- C is the floor area of the whole property.
Time-based method
You also need to work out the number of days part of your home was rented (used to produce income) because you can only claim expenses for the days in a year when that part of your home was rented. When a room in your home is not being rented out, it is treated as being used privately as part of your home and on those days, it is not held to produce income.
The formula for apportioning expense using the time-based method is:
[(days used to produce income + days held to produce income) ÷ number of days in the income year you owned the property] × expenses
Where:
- The 'days used to produce income' is the number of days your property is occupied for rent, which includes days for which rent is paid even if the property is not physically occupied.
- The 'days held to produce income' is the number of days your property is unoccupied but available for rent on commercial terms. This will be zero when you rent a room in your home because only the days the room is rented are taken into account.
Example: Renting out part of your home
Jane has a 2-bedroom unit with 2 bathrooms in a popular downtown area. Jane lives alone and only uses her master bedroom and ensuite bathroom. The second bedroom and main bathroom is accessible from the common areas of the unit including the lounge, kitchen and balcony and is mostly used by visitors.
Jane decides to rent out the second bedroom using an online platform to earn extra income. She actively monitored replies from the listing and doesn't refuse guests when the room is available.
During the income year, Jane rented the second bedroom of her property for 150 days.
The unit is 80 square metres in total. The spare room being rented is 10 square metres.
Jane also gives paying guests access to common areas including the main bathroom, kitchen, lounge and balcony, which totals 50 square metres. She also offers her guests access to her Wi-Fi for free.
During the income year, Jane incurred interest expenses, rates, body corporate fees, electricity and internet expenses for the property of $26,153. She also incurred sharing platform commission fees of $425.
To apportion her expenses and work out how much she can claim as a deduction, Jane must use the area-based method. Jane must also use the time-based method, because she only rented her second bedroom for 100 days during the income year.
Even though Jane had the room listed for rent for the whole income year, the days it was unoccupied aren't treated as days held to produce income. This is because when the room wasn't rented out, it's treated as being used privately by Jane. Therefore, the number of days held to produce income at commercial rates when the bedroom wasn't rented will be zero.
Step 1 – apply the area-based method
Jane works out the percentage of the house her paying guests have access to using the area-based method as follows:
(10 square metres + (50 square metres ÷ 2)) ÷ 80 square metres = 0.4375
0.4375 × 100 = 43.75%
Step 2 – apply the time-based method
Jane uses the following formula to calculate the time during the income year that she used part of her property to produce rental income:
150 days used to produce income ÷ 365 days = 0.4110
0.4110 × 100 = 41.1%
By multiplying the time-based method and area-based method together, Jane will be able to work out what percentage of her yearly expenses are deductible.
43.75% × 41.1% = 17.98%
Jane can claim a deduction for 17.98% of her interest expenses, rates, body corporate fees, electricity and internet expenses ($26,153 x 17.98% = $4,702). Jane can also claim 100% of the expenses associated solely with renting out the second bedroom, that is, the sharing economy platform's service fees or commission ($425).
For the income year, Jane can claim a deduction for rental expenses of $5,127 ($4,702 + $425).
End of example
Renting out your whole home on an occasional basis
If you rent out your whole home (main residence) on an occasional basis through the sharing economy, you can claim the portion of expenses relating to the period it was rented out.
This applies if you rent out your home when you're away for a period of time, or if you vacate it to allow paying guests to stay. In this case, the total expenses you can claim must be apportioned using the time-based method.
Example: Renting out your home on an occasional basis
John and Mary live in a one-bedroom unit in the city, which they list as available for rent on an online platform for paying guests. When they accept a booking for their unit, they stay with Mary’s parents.
Because the unit is John and Mary’s home (main residence), and they only vacate the place when there's a booking, they can only claim expenses based on the time that it was rented out.
Last year, John and Mary rented out the unit for 100 nights.
Applying the time-based method, John and Mary calculate their deductible percentage of expenses as:
100 days used to produce assessable income ÷ 365 days = 0.2739
0.2739 × 100 = 27.39%
This means they can claim 27.39% of the general expenses for the unit (such as electricity, interest on their mortgage, rates and body corporate fees).
John and Mary can claim 100% of the expenses associated solely to renting out the unit, such as the sharing platform's service fees or commission.
End of example